AMENDMENT NO. 3 AND LIMITED WAIVER TO NOTE AND WARRANT PURCHASE AGREEMENT

Exhibit 10.1

AMENDMENT NO. 3 AND LIMITED WAIVER

TO NOTE AND WARRANT PURCHASE AGREEMENT

This Amendment No. 3 and Limited Waiver to Note and Warrant Purchase Agreement (the " Amendment "), dated as of March 31, 2009 is between AE BIOFUELS, INC. , a Nevada corporation (the “ Company ”) and THIRD EYE CAPITAL CORPORATION , an Ontario corporation, as agent (“ Agent ”).

RECITALS

A.

The Company, Agent and the Purchasers named therein entered into a certain Note and Warrant Purchase Agreement, dated as of May 16, 2008, as amended by that certain Amendment No. 1 to Note and Warrant Purchase Agreement, dated as of May 28, 2008 between the Company and Agent and as further amended by that certain Amendment No. 2 and Limited Waiver to Note and Warrant Purchase Agreement, dated as of July 23, 2008 between the Company and Agent (as the same may be further amended, restated, supplemented, revised or replaced from time to time, the "Agreement").  Capitalized terms used but not defined in this Amendment shall have the meaning given to them in the Agreement.

B.

The Company has requested and the Agent and Purchasers have agreed to, among other things, extend the maturity date for the Note and waive certain covenant defaults, but only to the extent and subject to the limitations set forth in this Amendment and without prejudice to the rights of Agent or any Purchasers.

AGREEMENT

SECTION 1.

Amendments .  As of the date hereof, the following sections of the Agreement shall be and hereby are amended as follows:

(A)

Recitals Part of Agreement.  The foregoing recitals are hereby incorporated into and made a part of this Agreement, including all defined terms referenced therein.

(B)

Section 4.2 (Payment of Interest).  Section 4.2 of the Agreement is deleted in its entirety and amended by inserting the following in its place:

“4.2

Payment of Principal and Interest .  

(i)

Principal .  On each of July 31, 2009, August 31, 2009 and September 30, 2009, the Company shall pay to the holder of the Note principal payments equal to the greater of (i) $50,000 or (ii) twenty-five percent (25.0%) of the Company’s Total Free Cash Flow for the immediately preceding month. Commencing October 31, 2009 and on the last day of each month thereafter until payment in full of the outstanding principal balance of the Note and all accrued and unpaid interest thereon, the Company shall pay to the holder of the Note principal payments equal to the greater of (i) $100,000 or (ii) twenty-five percent (25.0%) of the Company’s Total Free Cash Flow for the immediately preceding month.  “ Total Free Cash Flow ” shall mean the dollar amount of the

Company’s and its Subsidiaries’ (i) total net earnings before interest, taxes, depreciation and amortization, less (ii) interest payments under the Note, less (iii) budgeted capital expenditures approved by the Agent.  

(ii)

Interest .

 The Company shall pay to the holder of the Note accrued interest on the first Business Day of each calendar quarter (each an “ Interest Payment Date ”), beginning July 1, 2008, at the Interest Rate. On the Maturity Date (defined below) interest on the principal balance of the Note outstanding from the immediately preceding Interest Payment Date through and including the Maturity Date shall be payable at the Interest Rate.  Interest shall accrue on any principal payment due under this Note and, to the extent permitted by applicable law, on any interest that has not been paid on the date on which it is due and payable until such time as payment therefore is actually delivered to the holder of the Note.”

(C)

Section 4.3 (Payment at Maturity).  Section 4.3 of the Agreement is deleted in its entirety and amended by inserting the following in its place:

“4.3

Payment at Maturity.  On December 31, 2009 (the “ Maturity Date ”), the Company will pay the entire then outstanding principal amount of the Notes together with all accrued and unpaid interest thereon.”

(D)

Section 4.5 (Mandatory Prepayments).  Section 4.5 of the Agreement is deleted in its entirety and amended by inserting the following in its place:

“4.5

Mandatory Prepayments .  

(i)

On the Maturity Date, upon a Change of Control or upon the occurrence and during the continuation beyond all applicable grace or cure periods of an Event of Default (as hereinafter defined), the Company shall (a) prepay all of the Notes for an amount equal to the then outstanding principal balance plus all accrued but unpaid interest thereon, and (b) pay in full all of the other obligations owing to Agent and Purchaser under or in connection with this Agreement, which amount shall be calculated on the date of prepayment and be payable in cash on demand in immediately available funds on such date.   

(ii)

In addition to and not in limitation of the foregoing, the Company shall within five (5) Business Days following notice thereof from Agent to the Company, arrange for a deficiency guarantee from McAfee Capital LLC in the amount of $1,500,000 (the “ Deficiency Guarantee ”). The Deficiency Guarantee shall be in addition to the existing McAfee Capital Guaranty, as additional collateral security for the Indebtedness evidenced by the Note, but only to the extent that such Indebtedness is not recovered by the Collateral (excluding the Deficiency Guarantee). The Agent may, in its sole discretion, thereafter agree to release such additional collateral to the extent Agent determines in its sole discretion that the Note is adequately secured based on appraisals of the collateral securing the Note in form and content acceptable to Agent.”

(E)

Section 4.5 (Mandatory Prepayments).  Section 5.6(b) of the Agreement is hereby deleted in its entirety and amended by inserting the following in its place:

“(b)

Stock Market Capitalization .  The Company shall at all times maintain an aggregate dollar market value of all of the Company's outstanding shares of at least the following as of the end of each monthly period below:

 (F)

Section 5.1 (Financial Statements).  Section 5.1 of the Agreement is hereby amended by inserting the following at the end of Section 5.1:

“Beginning July 1, 2009, The Company will also provide to Agent within fifteen (15) days of the end of each calendar month the Company’s projected cash flow forecast including a written report summarizing all material variances between the Company’s projected cash flow and actual operating results in form and content satisfactory to Agent.”

SECTION 2.

Conditions to Effectiveness .  This Amendment, and the consents and amendments contained herein, shall be effective only upon and subject to satisfaction of the following conditions precedent (the date of satisfaction of all such conditions being referred to herein as the “ Effective Date ”):  

(A)

Agent shall have received and accepted an original of this Amendment duly executed by the parties hereto;

(B)

If the outstanding principal balance of the Note and all accrued and unpaid interest thereon has not already been paid by the Company, Agent shall have received an extension and amendment fee of $250,000 payable on or before May 16, 2009 in cash in immediately available funds, which fee shall be deemed fully earned and nonrefundable on such date. If unpaid by May 16, 2009, the amendment fee will earn interest using the Interest Rate, until paid in full ;

(C)

Agent shall have received an original Patent Security Agreement duly executed by Energy Enzymes, Inc. covering all of Energy Enzyme, Inc.’s right, title and interest in and to

the proprietary cellulosic ethanol technology for commercial implementation at the cellulosic ethanol demonstration facility located in 109 South Parkmont, Butte, Montana  59701;

(D)

The Company shall agree to pay on July 1, 2009, in cash in immediately available funds, to Agent an amendment fee equal to $100,000, and all fees, costs and expenses owed to and/or incurred by Agent and its counsel in connection with the Agreement and/or this Amendment, including, without limitation, the costs of appraisals of the real property collateral located in Vermilion County, Illinois and Clay County, Nebraska;

(E)

Agent shall have received duly executed control agreements providing for a security interest in all deposit accounts of the Company (and not its Subsidiaries) in form and content acceptable to Agent;

(F)

Agent shall have received an amendment to the Warrant amending the exercise price of the Warrants based on the volume weighted average trading price of the Common Stock of the Company for the twenty trading days immediately preceding the date of this Amendment. All other terms of the Warrant will remain the same;

(G)

Agent shall have received evidence that such other approvals, opinions, documents, agreements, instruments, certificates, schedules and materials as Agent may reasonably request;

(H)

 (i) the representations and warranties contained herein and in all other Transaction Documents shall be true and correct in all material respects as of the date hereof and as of the date hereof as if then made, except for such representations and warranties limited by their terms to a specific date; (ii) no Event of Default shall be in existence after giving effect to this Amendment; (iii) all proceedings taken in connection with the transactions contemplated by this Amendment and all documentation and other legal matters incident thereto shall be satisfactory to Agent; and

(I)

as further consideration of Agent and Purchasers agreeing to the amendments contained in this Amendment, the Company hereby agrees and covenants with Agent as follows:

(i)

from the Effective Date until the Maturity Date, neither the Company nor any of its Subsidiaries shall (a) file a voluntary petition in bankruptcy or file a voluntary petition or file an answer or file any proposal of notice of intent to file a proposal or otherwise commence any action or proceeding seeking reorganization, arrangement or readjustment of its debts or which seeks to stay or has the effect of staying any creditors or for any other relief under Chapter 11 of Title 11 of the United States Code, as amended from time to time and any successor statutes and all rules and regulations promulgated thereunder (the “ Bankruptcy Code ”), the Bankruptcy and Insolvency Act (Canada) and the Companies’ Creditors Arrangement Act (Canada), as amended and in effect from time to time and the regulations issued from time to time thereunder, or under any other bankruptcy, insolvency, liquidation, winding up, corporate or similar act or law, provincial, state or federal, now or hereafter existing, or consent to, approve of or acquiesce in, any such petition, proposal, action or proceeding; or (b) apply for or acquiesce in the appointment of a receiver, assignee, liquidator, sequestrator, custodian, monitor, trustee or similar officer for it or for all or any part of its property or assets; or (c) make an assignment for the benefit